NetSuite’s earnings sparked a round of commentary by prominent commentators. From Dennis Howlett at Constellation we saw:
“Netsuite’s earnings fire a warning shot to the incumbents.”
Arik Hesseldahl of the Wall Street Journal’s All Things Digital said:
while Matt Rosoff at Business Insider weighed in with:
The common theme across these articles revolved around three observations. Firstly, the traditional on-premise vendors are under attack. The majority of NetSuite’s business comes from replacements. Dennis Howlett explains:
“SaaS/cloud vendors seem capable of continuing to grow regardless of the economic conditions. There can only be one explanation. The total value proposition is more compelling than that offered by the on-premises vendors.
That spells one thing – a changing of the guard that no amount of incumbent maintenance revenue can protect. It represents the disruption the incumbents cannot match with outdated, antiquated business models that do not match today’s realty.”
Secondly, NetSuite are proving that SaaS is not only for SMBs. We are seeing this in other market segments and it is certainly a trend that companies such as SalesForce have driven to success over the last few years. Google’s GM announcement is another strong indicator. NetSuite reported this trend as a substantial increase in Average Sales Price. Matt Rosoff, in his article, reports that NetSuite CEO Zach Nelson commented on the incumbent vendors: “As we’ve moved upmarket…we’ve discovered how horrible they are.” Strong words, but apparently well justified.
Finally, the consensus is that the incumbent, traditional enterprise vendors are finding it very difficult to move away from their current model. Much has been written about their challenges. Aggressively attacking your own cash-rich maintenance base, the most profitable part of your business, with a SaaS alternative is a tough call to make. Arik Hesseldahl quotes Nelson as saying “No traditional software company has successfully made the transition to the cloud, and there are a whole bunch of reasons for that.”
Yes, it was a good day in the cloud. More importantly, it is a good time to be in the cloud. Dennis Howlett stuck his neck out:
“I’ll be a tad bold here: two or three more quarters of a similar kind and it is game over for the incumbents. They will not go away but they will become irrelevant to those businesses committed to growth.”